Lending relationships and the effect of bank distress: evidence from the 2007-2009 financial crisis

Daniel Carvalho, Miguel A. Ferreira, Pedro Matos

Research output: Contribution to journalArticle

26 Citations (Scopus)

Abstract

We study the transmission of bank distress to nonfinancial firms from 34 countries during the 2007-2009 financial crisis using systemic and bank-specific shocks. We find that bank distress is associated with equity valuation losses and investment cuts to borrower firms with the strongest lending relationships with banks. The losses are not offset by borrowers' access to public debt markets and are concentrated in firms with the greatest information asymmetry problems and weakest financial positions. Our findings suggest that public debt markets do not mitigate the effects of relationship bank distress during financial crises.

Original languageEnglish
Pages (from-to)1165-1197
Number of pages33
JournalJournal of Financial and Quantitative Analysis
Volume50
Issue number6
DOIs
Publication statusPublished - Dec 2015

Keywords

  • credit conditions
  • great-depression
  • external finance
  • liquidity
  • intermediation
  • investment
  • reputation
  • borrowers
  • choice
  • shocks

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